VODACOM TO ISSUE SH500BN SHARES

In Summary

The amount – the highest in the history of IPOs in Tanzania – will help to stimulate trading activities at the Dar es Salaam Stock Exchange (DSE) as the government seeks to build an inclusive economic growth.

Currently, the net asset value (NAV) for Vodacom Tanzania is estimated to be around Sh750 billion.

Dar es Salaam. Vodacom Tanzania Limited is to issue shares worth up to Sh500 billion in its planned initial public offer (IPO), The Citizen has reliably learnt.

The amount – the highest in the history of IPOs in Tanzania – will help to stimulate trading activities at the Dar es Salaam Stock Exchange (DSE) as the government seeks to build an inclusive economic growth.

Currently, the net asset value (NAV) for Vodacom Tanzania is estimated to be around Sh750 billion.

However, stock market experts are of the view that since Vodacom is a well established company, its actual value would be more than what is prescribed in the company’s Balance Sheet.

This means that its actual market value will be calculated basing on the rule of Premium to NAV, thanks to its excellent management, branding initiatives, investment strategies and its bullish profitability outlook.

The Premium to NAV is a pricing situation that occurs when the stock value of a closed-end mutual fund is trading at a premium to the NAV of its components. The premium arises from the optimistic sentiment of investors toward the fund, which may be due to excellent management and investment strategies.

Basically, the international rule is that the Premium to NAV for such well branded companies would range between twice or thrice the company’s balance sheet, suggesting that Vodacom’s actual market value will range between Sh1.5 trillion and Sh2.25 trillion.

The Electronic and Postal and Communications Act, 2010 – as amended by the Finance Act 2016 – requires Vodacom and other telecommunications companies to offload 25 per cent of their shares to the public, meaning therefore that Vodacom’s IPO will range between Sh375 billion and Sh500 billion.

The highest amount to have been attained through IPO in the history of Tanzania was the Sh121.51 billion which East African Breweries Limited (EABL) launched in 2012 in placement of its 20 per cent stake in Tanzania Breweries Limited Group (TBL).

That came 14 years after the TBL was listed on the DSE in 1998 at an offer price of Sh550 per share.

Similarly, NMB’s IPO – which was issued in 2008 – sought to collect Sh63 billion through the sale of the state’s 21 per cent stake. It was however oversubscribed by 42 per cent.

In 2006, Tanzania Portland Cement Company (TPCC) – which trades as Twiga – issued an IPO in which it sought to raise Sh23.4 billion worth of capital from the public through the sale of authorised 53,975,900 shares. However, the IPO was oversubscribed when a total of Sh92.5 billion was raised.

In 2009, CRDB issued an IPO, seeking to raise Sh18.8 billion through the sale of five per cent of shares for the Danish International Development Agency.

Upon listing, Vodacom will raise the DSE’s bar from the current market capitalization of Sh20.361 trillion to around Sh22.6 trillion.

Though the prospectus is still in its infancy stages, analysts are of the view that the firm’s price will be much higher than those of other firms largely due to the fact that Vodacom is an established company which has a profitability track record.

“What matters will be its dividend policy. Otherwise, investors are enthusiastically waiting for the IPO,” said the Core Securities Limited chief executive officer, Mr George Fumbuka.

The chief executive officer for Zan Securities Limited, Mr Raphael Masumbuko, echoed similar sentiments. “I have been receiving countless phone calls from investors since morning. They are really prepared,” he said.

On Friday last week, Vodacom Tanzania submitted a prospectus to the Capital Markets and Securities Authority (CMSA), seeking to offload 25 per cent to the public through an IPO and subsequent listing at the Dar es Salaam Stock Exchange (DSE) as the mobile phone firm seeks to abide by the Electronic Postal and Communications Act, 2010.

Vodacom Tanzania managing director Ian Ferrao said in a statement on Sunday that his company has submitted the draft prospectus and that it was willing to working with the regulators as it moves towards an IPO, noting however that the draft prospectus will, consequently, evolve over time.

Parliament approved the Electronic and Postal and Communications Act in 2010 that among other issues, compelled telecommunication firms to offload 25 per cent of their shares and sell the same to the public through IPOs.

President John Magufuli’s administration had to bring back the law in form of amendments (the Electronic and Postal Communications Act, (Cap. 306) through the Finance Bill 2016 which was passed into law in June this year in what the government said was a deliberate move to ensure that Tanzania is reaping maximum benefits from the firms’ proceeds.

Apart from helping Tanzanians to earn stakes in the lucrative mobile phone industry, the move will also help the government to ascertain the actual revenues that the companies collect so they can be able to pay the right amount of taxes, the Finance and Planning Minister, Dr Phillip Mpango told the National Assembly in June.

“With this move, existing mobile phone firms will be duty-bound to list their shares on the stock market in a period of six months from July 1, 2016…..Similarly, companies that will be registered in the country after July 1, 2016 will have to list on the stock market after two years of their operating in the country,” Dr Mpango said as he moved a motion to finalise the debate on the 2016 Finance Bill.